# Securities and Exchange Board of India v. Ram Kishori Gupta & Anr

- **Citation:** 2025 INSC 454
- **Court:** Supreme Court of India
- **Decided:** 2025-04-07
- **Case number:** Civil Appeal No. 7941 of 2019
- **Bench:** Sanjay Kumar, K.V. Viswanathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/securities-and-exchange-board-of-india-v-ram-kishori-gupta-anr-38543
- **Pages:** 22

## Headnote

Whether SEBI can pass multiple final orders on the same cause
of action; applicability of principles of res judicata/constructive res
judicata; whether the Appellate Tribunal was justified in setting
aside the 2018 disgorgement order passed by SEBI holding that
it was barred by the principle of res judicata in view of its earlier
2014 order.
Headnotes†
Securities and Exchange Board of India Act, 1992 - ss.11,
11B - Code of Civil Procedure, 1908 - s.11 - Principles of res
judicata/constructive res judicata - Applicability of - SEBI
issued show cause notices in 2012 to VCL, a public limited
company in relation to alleged misleading advertisements
issued by it - Respondents had allegedly purchased shares
of VCL on the basis of misleading advertisements and
suffered heavy loss - Eventually, in 2014, SEBI passed order
u/ss.11 and 11B and the Regulations, finding VCL guilty of
spreading misleading information to the public and imposed
penalties however, no penalty of disgorgement was imposed -
Subsequently, in 2018, SEBI passed a disgorgement order
whereby VCL was held liable to disgorge the unlawful gains
along with interest - Appeals filed before the Tribunal - Tribunal
inter alia set aside the disgorgement order holding that it was
barred by the principle of res judicata - Justification:
Held: Tribunal was fully justified in setting aside the disgorgement
order - SEBI cannot pass multiple final orders on the same cause
of action - Having undertaken the exercise pursuant to its showcause notices issued in 2012, SEBI passed the 2014 order, in
exercise of power u/s.11B, with certain directions which attained
* Author
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finality and were given full effect to - Thus, SEBI could not have
reopened the entire exercise without just cause so as to pass a
fresh order u/s.11B, once again, 4 years later - Imposition of the
penalty of disgorgement was very much within the ambit and scope
of SEBI even at the time the initial 2014 order was passed but, it
chose not to resort to it - Once the said order attained finality, as
it was neither challenged nor set aside, and was fully given effect
to, passing of a fresh order once again, on the very same cause
of action, trampled upon and reversed the finality that had already
attached to the said order - Principles of res judicata/constructive
res judicata not only apply to the parties to a dispute but also bind
the adjudicating authorities, judicial, quasi-judicial or administrative,
seized of such dispute - The entire exercise undertaken by SEBI
after the passing of the final 2014 order resulting in the 2018
disgorgement order is unsustainable. [Paras 25, 28, 29, 31, 33]
Securities and Exchange Board of India Act, 1992 - s.15U(1) -
Code of Civil Procedure, 1908 - s.11 - Principles of res judicata/
constructive res judicata - Applicability of - SEBI contended
that the principle of res judicata in s.11CPC, cannot be imported
into these proceedings, due to s.15U(1) of the 1992 Act:
Held: Not agreed - s.15U(1) merely deals with the procedure and
powers of the Tribunal and states that the Tribunal shall not be
bound by the procedure laid down by the Code of Civil Procedure,
1908, but shall be guided by the principles of natural justice and
shall have the power to regulate its own procedure - Thus, it
does not cover proceedings before the SEBI and its Whole-Time
Members (WTMs) under the Act of 1992 - Therefore, SEBI cannot
claim exemption from the applicability of the principle of res judicata
thereunder - When the earlier 2014 order, on the same cause of
action and based on the very same show-cause notices, remained
intact and attained finality, the later 2018 order could not have been
passed, supplementing it with additional directions - By the time
this order was passed, the penalties of restraint and prohibition
visited upon the 24 entities, under the earlier 2014 order, had
already been suffered by them - Therefore, the order had worked
itself out - While so,

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[2025] 4 S.C.R. 2789 : 2025 INSC 454
Securities and Exchange Board of India
v.
Ram Kishori Gupta & Anr.
(Civil Appeal No. 7941 of 2019)
07 April 2025
[Sanjay Kumar* and K.V. Viswanathan, JJ.]
Issue for Consideration
Whether SEBI can pass multiple final orders on the same cause
of action; applicability of principles of res judicata/constructive res
judicata; whether the Appellate Tribunal was justified in setting
aside the 2018 disgorgement order passed by SEBI holding that
it was barred by the principle of res judicata in view of its earlier
2014 order.
Headnotes†
Securities and Exchange Board of India Act, 1992 - ss.11,
11B - Code of Civil Procedure, 1908 - s.11 - Principles of res
judicata/constructive res judicata - Applicability of - SEBI
issued show cause notices in 2012 to VCL, a public limited
company in relation to alleged misleading advertisements
issued by it - Respondents had allegedly purchased shares
of VCL on the basis of misleading advertisements and
suffered heavy loss - Eventually, in 2014, SEBI passed order
u/ss.11 and 11B and the Regulations, finding VCL guilty of
spreading misleading information to the public and imposed
penalties however, no penalty of disgorgement was imposed -
Subsequently, in 2018, SEBI passed a disgorgement order
whereby VCL was held liable to disgorge the unlawful gains
along with interest - Appeals filed before the Tribunal - Tribunal
inter alia set aside the disgorgement order holding that it was
barred by the principle of res judicata - Justification:
Held: Tribunal was fully justified in setting aside the disgorgement
order - SEBI cannot pass multiple final orders on the same cause
of action - Having undertaken the exercise pursuant to its showcause notices issued in 2012, SEBI passed the 2014 order, in
exercise of power u/s.11B, with certain directions which attained
* Author
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finality and were given full effect to - Thus, SEBI could not have
reopened the entire exercise without just cause so as to pass a
fresh order u/s.11B, once again, 4 years later - Imposition of the
penalty of disgorgement was very much within the ambit and scope
of SEBI even at the time the initial 2014 order was passed but, it
chose not to resort to it - Once the said order attained finality, as
it was neither challenged nor set aside, and was fully given effect
to, passing of a fresh order once again, on the very same cause
of action, trampled upon and reversed the finality that had already
attached to the said order - Principles of res judicata/constructive
res judicata not only apply to the parties to a dispute but also bind
the adjudicating authorities, judicial, quasi-judicial or administrative,
seized of such dispute - The entire exercise undertaken by SEBI
after the passing of the final 2014 order resulting in the 2018
disgorgement order is unsustainable. [Paras 25, 28, 29, 31, 33]
Securities and Exchange Board of India Act, 1992 - s.15U(1) -
Code of Civil Procedure, 1908 - s.11 - Principles of res judicata/
constructive res judicata - Applicability of - SEBI contended
that the principle of res judicata in s.11CPC, cannot be imported
into these proceedings, due to s.15U(1) of the 1992 Act:
Held: Not agreed - s.15U(1) merely deals with the procedure and
powers of the Tribunal and states that the Tribunal shall not be
bound by the procedure laid down by the Code of Civil Procedure,
1908, but shall be guided by the principles of natural justice and
shall have the power to regulate its own procedure - Thus, it
does not cover proceedings before the SEBI and its Whole-Time
Members (WTMs) under the Act of 1992 - Therefore, SEBI cannot
claim exemption from the applicability of the principle of res judicata
thereunder - When the earlier 2014 order, on the same cause of
action and based on the very same show-cause notices, remained
intact and attained finality, the later 2018 order could not have been
passed, supplementing it with additional directions - By the time
this order was passed, the penalties of restraint and prohibition
visited upon the 24 entities, under the earlier 2014 order, had
already been suffered by them - Therefore, the order had worked
itself out - While so, 22 out of the 24 entities were again visited
with fresh penalties in the form of disgorgement coupled with much
longer restraints/prohibitions, in the event of default in payment -
Though, the illegalities committed by VCL and the other entities
had financial implications warranting a direction for disgorgement,
[2025] 4 S.C.R.
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Securities and Exchange Board of India v. Ram Kishori Gupta & Anr.
but once the SEBI chose not to issue such a direction in the first
instance and was satisfied with lesser penalties in its 2014 order,
the question of permitting it, without just cause, to revisit the said
final order and pass fresh directions does not arise - Doing so
would be violative of public policy, which attaches great value and
sanctity to the finality of judicial determinations and the principle
of res judicata. [Paras 25-27]
Statutory Bodies - Laidback and indolent approach,
deprecated - Unconscionable delay on part of SEBI though,
its Whole-Time Member (WTM) passed the order on 01.04.2016,
requiring an examination afresh and initiation of disgorgement
proceedings, SEBI issued a show-cause notice only on
19.01.2018 proposing disgorgement and then passed an order
seven months later:
Held: This laidback and indolent approach on the part of SEBI in
dealing with the matter does not augur well for a statutory body
enjoined with the duty of protecting investors and regulating the
securities market which, by its very nature, is volatile, to drag its
feet and indulge in unwarranted and unjustified delays. [Para 30]
Securities and Exchange Board of India Act, 1992 - ss.11,
11B - Scheme of s.11B. [Paras 21, 22]
Case Law Cited
Amalgamated Coalfields Ltd. and Another v. Janapada Sabha
Chhindwara and Others [1963] Supp. 1 SCR 172 : AIR 1964 SC
1013; Devilal Modi v. State Tax Officer, Ratlam, and Others [1965]
1 SCR 686 : AIR 1965 SC 1150 - followed.
Hope Plantations Ltd. v. Taluk Land Board, Peermade and Another
[1998] Supp. 2 SCR 514 : (1999) 5 SCC 590 - relied on.
List of Acts
Securities and Exchange Board of India Act, 1992; Code of
Civil Procedure, 1908; Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade Practices relating
to Securities Markets) Regulations, 1995; Companies Act,
1956; Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 2003; Securities and Exchange Board of India
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(Substantial Acquisition of Shares and Takeovers) Regulations,
1997; Securities Contracts (Regulation) Act, 1956; Consumer
Protection Act, 1986.
List of Keywords
SEBI cannot claim exemption from the applicability of the principle
of res judicata; Principles of res judicata/constructive res judicata
bind adjudicating authorities, judicial, quasi-judicial or administrative;
SEBI cannot pass multiple final orders on same cause of action;
Disgorgement order; Principles of res judicata; Constructive res
judicata; Multiple final orders; Multiple orders; Same cause of
action; Earlier order attained finality; Misleading advertisements;
Misleading or fraudulent advertisements; Compensation; Fraud
on the investors; Refund of invested amount; Restitution; Vital
Communications Limited; VCL; Section 11, 11 B, Securities and
Exchange Board of India Act, 1992; Section 11, Code of Civil
Procedure, 1908.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7941 of 2019
From the Judgment and Order dated 02.08.2019 of the Securities
Appellate Tribunal, Mumbai in AN No. 44 of 2019
With
Civil Appeal No(s). 1649-1652 of 2022 and Civil Appeal No. 5051
of 2025
Appearances for Parties
Advs. for the Appellant:
Chander Uday Singh, Sr. Adv., Amarjit Singh Bedi, Ms. Surekha
Raman, Shreyash Kumar, Yashwant Sanjenbam, Harshit Singh,
Sidharth Nair, M/s. K.J. John And Co., Mrs. K. Sarada Devi, Ms.
Kaveri Kalyana Ram.
Advs. for the Respondents:
Purvish Malkan, Chander Uday Singh, Sr. Advs., Prakash Shah,
Mrs. Rekha Pandey, Raghav Pandey, Mrs. Dr. Keyur Shah, Mrs.
K. Sarada Devi, Ms. Kaveri Kalyana Ram, H.C. Gupta, Amarjit
Singh Bedi, Ms. Surekha Raman, Shreyash Kumar, Harshit Singh,
Yashwant Sanjenbam, Sidharth Nair, M/s. K.J. John And Co.
[2025] 4 S.C.R.
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Securities and Exchange Board of India v. Ram Kishori Gupta & Anr.
Judgment / Order of the Supreme Court
Judgment
Sanjay Kumar, J.
1.
Delay in the filing of Civil Appeal (Diary) No. 42829 of 2019 is
condoned.
2.
Considering the twists and turns that this litigation has taken since
its inception in 2005, these appeals put to test the saying that the
scales of justice may be slow to tip but when they do, let them tip
in favour of what is right1.
3.
M/s. Vital Communications Limited, New Delhi (hereinafter, 'VCL'), is
a public limited company whose shares were listed on the Bombay
Stock Exchange, the Delhi Stock Exchange and the National Stock
Exchange. While so, the Securities and Exchange Board of India
(hereinafter, 'SEBI') issued show-cause notice dated 24.05.2005
to VCL and its promoters and directors under Section 11(4) read
with Sections 11 & 11B of the Securities and Exchange Board of
India Act, 1992 (for brevity, 'the Act of 1992'), in relation to alleged
misleading advertisements issued by VCL with regard to buyback of its
shares, issue of bonus shares and preferential issue of shares within
30 days. Details of the advertisements published in the newspapers
between 27th May, 2002 and 24th June, 2002 were furnished therein
and these advertisements were stated to be a ploy to mislead
investors by benchmarking the price of the scrip at ₹30/-, when
the share was trading at around ₹3/- to ₹12/-. SEBI further stated
that its investigation had revealed that VCL had allotted 72 lakh
equity shares of ₹10/- each at a premium of ₹2.50/-, amounting to
₹9,00,00,000/- , on 14.12.1999 to 15 companies which had all given
the same address at the time of opening their demat accounts. That
apart, these 15 companies were shown as suppliers of VCL. VCL's
funds were indirectly used for purchase of its own shares, inasmuch
as it gave advances to M/s. Anupama Communications Pvt. Ltd. and
M/s. CBS Systems Pvt. Ltd. which, in turn, gave trade advances to the
15 companies. Thereby, the same money came back to VCL as share
1
Nancy Taylor Rosenberg, American author.
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application money. It was also alleged that, between 2nd May, 2002 and
31st July, 2002, 71.14 lakh shares were sold by promoter-related
entities in the market, taking advantage of the artificial interest
created by the misleading advertisements. SEBI asserted that the
chain of events in respect of the buyback of shares, bonus issue
and preferential allotment by VCL, along with the unwarranted
advertisements, etc., suggested an orchestrated ploy on the part of
VCL and its promoters to create an artificial demand for the shares
of VCL and induce innocent investors into purchasing shares so
as to absorb sales by the promoter-related entities. VCL and its
promoters and directors were alleged to have violated Regulations
3, 4, 5(1) & 6(a) of the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Markets) Regulations, 1995, along with Section 77 of the
Companies Act, 1956. SEBI, therefore, called upon the addresses of
the notice to show cause as to why suitable directions, including a
direction to restrain all of them from accessing the securities market,
and prohibiting them from buying, selling or dealing in securities for
a suitable period, should not be passed under Section 11(4) read
with Sections 11 and 11B of the Act of 1992.
4.
Thereafter, SEBI, speaking through a Whole-Time Member (WTM),
passed order dated 20.02.2008 in exercise of power under Section
11B of the Act of 1992 and Regulation 11 of the aforestated
Regulations of 1995. SEBI dropped the charges against Vinay Talwar,
former Chairman-cum-Managing Director of VCL, and imposed a
lesser penalty on Shubha Jhindal, Director of VCL, whereby she was
restrained from accessing the securities market and prohibited from
buying, selling and dealing in securities in any manner for a period
of six months. As regards the remaining noticees, i.e., VCL and its
other directors and promoters, SEBI restrained them from accessing
the securities market and prohibited them from buying, selling and
dealing in securities in any manner for a period of two years.
5.
Aggrieved by this order, VCL and its promoters and directors filed
Appeal Nos. 61, 65 and 81 of 2008 before the Securities Appellate
Tribunal, Mumbai (for brevity, 'the Tribunal'). By common order dated
28.08.2008, the Tribunal allowed their appeals. The Tribunal held that
the impugned order passed by SEBI failed to deal with the issues
properly and set aside the order dated 20.02.2008. The matter was
remanded to enable SEBI to issue fresh show-cause notices, afford
[2025] 4 S.C.R.
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Securities and Exchange Board of India v. Ram Kishori Gupta & Anr.
an opportunity of hearing to the noticees and to pass an order in
accordance with law.
6.
Parallelly, one Ram Kishori Gupta and her husband, Harishchandra
Gupta, who allegedly purchased shares of VCL on the basis of the
misleading advertisements, separately filed Appeal No. 207 of 2012
before the Tribunal. They had purchased 1,71,773 shares of VCL from
the Bombay Stock Exchange between 23.05.2002 and 25.06.2002.
They claimed to have suffered huge losses and approached the
forum constituted under the Consumer Protection Act, 1986, for
redressal of their grievance. However, by order dated 17.01.2010,
the National Consumer Disputes Redressal Commission, New Delhi,
held that their complaint would not fall within the purview of the
Consumer Protection Act, 1986, and left it open to them to approach
SEBI. They, thereupon, preferred a petition on 21.08.2010 to SEBI,
which was forwarded to the Bombay Stock Exchange, under letter
dated 13.09.2010. However, SEBI finally declined their request
for grant of compensation. In the meanwhile, as the order dated
20.02.2008 passed by SEBI had been set aside by the Tribunal on
28.08.2008, SEBI was again seized of the matter upon remand. They,
therefore, sought a direction to SEBI to pay them compensation of
₹51,53,190/ , at the rate of ₹30/- per share. Alternatively, they sought
such compensation after deducting ₹4,41,767/-, being the proceeds
of the shares sold by them in May/June, 2005, at the average price
of ₹2.37 per share.
7.
This appeal was disposed of by the Tribunal, vide order dated
30.04.2013. The Tribunal found that there was no directive or
mandate in any of the measures under Section 11(2) of the Act of
1992, empowering SEBI to undertake the task of considering and
granting compensation to investors for the losses that they may
have suffered due to misleading or fraudulent advertisements by a
company. The Tribunal, therefore, concluded that the prayer of the
appellants for a direction to SEBI to grant them compensation of
₹51,53,190/- was totally misconceived and rejected the same. The
Tribunal further observed that this aspect needed to be looked into
by a Civil Court of competent jurisdiction and not by SEBI under the
Act of 1992. The Tribunal directed SEBI to look into the appellants'
complaint as to the alleged misleading and fraudulent advertisements
issued by VCL. The outcome of such investigation was directed to
be conveyed to the appellants on completion thereof. The Tribunal
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further directed that, in case SEBI found VCL guilty of playing fraud
on investors, it could consider directing the concerned entity or VCL
to refund the actual amount spent by the appellants on purchasing
the shares in question with appropriate interest and as per law.
8.
Review Application No. 8 of 2013 was moved by SEBI in Appeal
No. 207 of 2012 filed by the aforestated two investors. This review
petition was disposed of by the Tribunal on 19.12.2013. Therein, the
Tribunal clarified as follows:
'Similarly, we also clarify that while observing that
consideration and imposition of penalties or the direction
to a company to refund an amount collected by that
company against the law is different matter and falls within
the domain of SEBI, we have directed only consideration
of such an issue, if any, as per the provisions of law and
only if the circumstances so require. To this extent, the
abovesaid order of this Tribunal dated April 30, 2013 in
appeal no. 207 of 2012 stands clarified.'
9.
While so, pursuant to the remand by the Tribunal, fresh showcause notices dated 06.07.2012 and 12.07.2012 were issued by
SEBI. The noticees therein, including VCL, were 24 entities in all.
Thereafter, through a WTM, SEBI passed order dated 31.07.2014
in exercise of power under Sections 11 and 11B of the Act of 1992,
read with Regulation 11 of the Securities and Exchange Board of
India (Prohibition of Fraudulent and Unfair Trade Practices relating
to Securities Market) Regulations, 2003, and Regulation 44 of the
Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997. In effect, SEBI found
therein that VCL had spread misleading information to the public. It
was opined that some of the promoters and directors were involved
in allotting shares to 15 companies, which were connected to VCL,
and these 15 companies were provided funds by VCL, which then
sold the shares in the open market. The WTM, in exercise of power
conferred by Section 19 read with Sections 11 and 11B of the Act of
1992 and the Regulations, cited supra, restrained the 24 noticees
from accessing the securities market and prohibited them from buying,
selling or otherwise dealing in securities, directly or indirectly or being
associated with the securities market in any manner whatsoever,
for the periods specified against each of them. The WTM further
[2025] 4 S.C.R.
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Securities and Exchange Board of India v. Ram Kishori Gupta & Anr.
directed that the preferentially allotted shares of VCL, lying in the
demat accounts of the allottees, shall remain frozen and VCL was
not to give effect to the transfer of any shares acquired and held
by the allottees in the preferential allotment dated 14.12.1999. The
WTM also restrained the preferential allottees from exercising voting
rights or other rights attached to the shares acquired and held by
them in such preferential allotment.
10. After the passing of this order, Ram Kishori Gupta and Harishchandra
Gupta filed Miscellaneous Application No. 145 of 2014 in Appeal No.
207 of 2012. Their grievance therein was that, while passing order
dated 31.07.2014, SEBI had failed to comply with the directions given
in the Tribunal's order dated 30.04.2013 in their Appeal No. 207 of
2012. Thereupon, the learned counsel appearing for SEBI informed
the Tribunal that SEBI would pass an additional order dealing with
the directions set out in the order dated 30.04.2013 passed by the
Tribunal. The Tribunal, vide order dated 17.11.2014, permitted SEBI
to do so within a time frame, after giving a personal hearing to Ram
Kishori Gupta and Harishchandra Gupta.
11. In consequence, a WTM of SEBI passed order dated 16.12.2014.
Therein, he noted the grievance of Ram Kishori Gupta and
Harishchandra Gupta to the effect that they had invested ₹18,25,041/-
in the purchase of VCL's shares, believing its false advertisements,
and suffered a loss of ₹13,83,274/-. He also took note of their
prayer to direct VCL to refund the actual amount spent by them on
purchasing the shares in question along with appropriate interest and
penalties. He found merit in their argument that SEBI was under a
mandate to protect the interest of investors and should, therefore,
take appropriate measures to exercise such mandate. He also opined
that no person could be allowed unjust enrichment by way of wrongful
gain made on account of fraudulent, manipulative and unfair trade
practices, but noted that, in the instant case, the ill-gotten gains, if
any, made by the entities mentioned in the order dated 31.07.2014
had not been quantified during the investigation and, therefore, the
same was not considered in the said order. He concluded that this
was a fit case to examine the feasibility of quantifying the ill-gotten
gains, if any, and disgorgement of the same and, thereafter, consider
restitution to the complainants in accordance with the provisions of
the Act of 1992 and the Regulations framed thereunder. He noted
that, insofar as the relief of compensation was concerned, it could
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only be given through the process of disgorgement, if justified by
the facts and circumstances of the case. He, accordingly, directed
the Investigation Department of SEBI to examine the feasibility of
quantifying the ill-gotten gains, if any, and issue requisite notice(s)
for disgorgement of the same within a time frame. Lastly, in such
an event, he directed SEBI to consider restitution in the case of the
complainants in accordance with the provisions of the Act of 1992
and the Regulations framed thereunder. This order was purportedly
passed in exercise of power under Sections 11, 11B and 19 of the
Act of the 1992.
12. Significantly, the aforestated order dated 16.12.2014 failed to take into
account the earlier order dated 30.04.2013 passed by the Tribunal
in Appeal No. 207 of 2012, which categorically negated the prayer
of Ram Kishori Gupta and Harishchandra Gupta to direct SEBI to
grant them compensation. Therein, the Tribunal had clearly recorded
that there is no mandate in law requiring SEBI to compensate an
investor who suffered loss on account of trading in shares, as it
would be in the nature of a claim for damages and would require to
be looked into by a Civil Court of competent jurisdiction. It was only
if VCL was found guilty of playing fraud on investors, that SEBI was
required to consider directing the concerned entity or VCL to refund
the amount spent by Ram Kishori Gupta and Harishchandra Gupta
on the purchase of their shares along with appropriate interest. The
clarificatory order dated 19.12.2013 passed by the Tribunal thereafter
in the review application filed by SEBI puts it beyond the realm
of doubt that SEBI was to 'consider' directing VCL to refund the
amount collected by it in violation of law, only if the circumstances
so required. In effect, SEBI's WTM, while passing the order dated
16.12.2014, virtually reviewed the earlier orders dated 30.04.2013
and 19.12.2013 passed by the Tribunal in Appeal No. 207 of 2012.
13. However, acting upon the directions in the order dated 16.12.2014,
the Investigation Department of SEBI conducted an enquiry and
addressed Report dated 15.06.2015 to Ram Kishori Gupta and
Harishchandra Gupta. Therein, it stated that, though VCL had
published misleading advertisements, neither the promoter group
nor the preferential allottees had made any gain out of it and, in the
absence thereof, disgorgement was not possible. In consequence,
it concluded that, in the absence of any disgorgement, SEBI could
not order refund of their monies. Stating so, the Investigation Team
[2025] 4 S.C.R.
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Securities and Exchange Board of India v. Ram Kishori Gupta & Anr.
ended by requesting Ram Kishori Gupta and Harishchandra Gupta
to inform SEBI if they wished to avail a personal hearing in the
matter before the WTM.
14. Aggrieved by the Report dated 15.06.2015, Ram Kishori Gupta
and Harishchandra Gupta again approached the Tribunal by way of
Appeal No. 189 of 2015. However, on 27.08.2015, this appeal was
disposed of by the Tribunal as withdrawn, noting that the appellants
were afforded an opportunity of hearing before a WTM of SEBI in
connection with the Report dated 15.06.2015. The WTM of SEBI
was, accordingly, directed to pass appropriate orders on merits, after
hearing the appellants, as expeditiously as possible.
15. Pursuant thereto, a WTM of SEBI, after giving due opportunity of
hearing to all concerned, passed order dated 01.04.2016. Therein,
noting the claim of Ram Kishori Gupta and Harishchandra Gupta
that they had suffered a loss of ₹51,53,190/-, the WTM opined that
SEBI had failed to consider the observations in the order dated
16.12.2014 and failed to calculate the losses caused by the promoters/
directors/concerned entities, as mentioned in the earlier order dated
31.07.2014. He, accordingly, reviewed the entire matter in the light
of the order dated 31.07.2014 and the investigation into the subject
issue and opined that the acts of fraud, highlighted in the order dated
31.07.2014, threatened market integrity and the orderly development
of the market, calling for regulatory intervention to protect the interest
of investors. He further opined that these entities could not be
allowed to unjustly enrich themselves at the cost of investors. He
noted that SEBI, while determining the ill-gotten gains in the scrip
of VCL, proceeded on a hypothesis different from the findings in the
order dated 31.07.2014 passed earlier and, in view of the above,
as the ill-gotten gains were still to be arrived at, he opined that it
would be appropriate to direct SEBI to look into the exact figure of
ill-gotten gains by VCL, its promoters/directors/preferential allottees,
Master Finlease Pvt. Ltd. (MFL), an entity owned by Vijay Jhindal, a
director of VCL, and others. Thereafter, SEBI was directed to initiate
disgorgement proceedings against those who perpetrated fraud on
the investors. He further directed that it would be appropriate that the
claims of Ram Kishori Gupta and Harishchandra Gupta be taken on
record and be considered in accordance with the provisions of the
Act of 1992 and the Regulations framed thereunder on disgorgement
of the ill-gotten gains.
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16. Consequential to the above order dated 01.04.2016, SEBI issued
show-cause notice dated 19.01.2018 to the 24 entities/noticees named
in the earlier order dated 31.07.2014. They were called upon to show
cause as to why appropriate directions for disgorgement of their illgotten gains should not be issued against them under Section 11B of
the Act of 1992. SEBI then passed order dated 28.09.2018. This order
was passed in exercise of power under Sections 11 and 11B of the
Act of 1992. Thereby, Noticee Nos. 1,2,3,5 and 7 to 24, being VCL,
its directors and other entities, were held jointly and severally liable
to disgorge their unlawful gains of ₹4,55,91,232/-. They were also
directed to pay interest thereon @ 10% per annum from 01.08.2002
till the date of payment. The disgorgement was to be made, with
applicable interest, within 45 days from the date of receipt of the
order and if they failed to do so, they were restrained from buying,
selling or dealing in the securities market in any manner whatsoever
or accessing the securities market directly or indirectly for a period of
5 years. Insofar as the issue of restitution is concerned, SEBI's WTM
noted the decision in the earlier order dated 30.04.2013 passed by
the Tribunal and held that restitution of the losses suffered by Ram
Kishori Gupta and Harishchandra Gupta was outside the scope of
SEBI. Referring to the observation of the Tribunal therein that SEBI
may pass a direction to compensate their losses either against VCL
or the entity concerned, the WTM opined that such a direction was
not feasible for a variety of reasons. The fraud committed had not
only affected Ram Kishori Gupta and Harishchandra Gupta but also
a large number of investors who had traded during the relevant time;
and the shares held by the complainants were not directly issued to
them by VCL but were purchased by them in the secondary market
and it would be unfair to only compensate them selectively, as there
would be many others who suffered similar losses by trading in the
scrip. Lastly, the complainants could not deny the fact that investment
in the securities market carried inherent risks, which an investor would
be expected to factor in. Considering these circumstances in totality,
the WTM deemed it appropriate not to issue any direction regarding
restitution in favour of Ram Kishori Gupta and Harishchandra Gupta.
17. Several appeals came to be filed before the Tribunal against the
aforestated order dated 28.09.2018 passed by the WTM of SEBI.
Ram Kishori Gupta and Harishchandra Gupta filed Appeal No. 44 of
2019, aggrieved by the denial of restitution, while Appeal Nos. 318
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Securities and Exchange Board of India v. Ram Kishori Gupta & Anr.
of 2019, 321 of 2019, 444 of 2019 and 442 of 2021 were filed by
VCL and others against the direction for disgorgement. Surprisingly,
the Tribunal chose to separate the appeals and did not adjudicate
them jointly. Appeal No. 44 of 2019, filed by Ram Kishori Gupta and
Harishchandra Gupta, was independently disposed of by the Tribunal,
vide order dated 02.08.2019, and Appeal Nos. 318 of 2019, 321 of
2019, 444 of 2019 and 442 of 2021, filed in relation to disgorgement,
were disposed of separately over two years thereafter, by common
order dated 20.12.2021.
18. By the order dated 02.08.2019, the Tribunal disagreed with the
reasoning of the WTM of SEBI in his order dated 28.09.2018 and
opined that, the spirit of the order dated 30.04.2013 was to the effect
that Ram Kishori Gupta and Harishchandra Gupta deserved to be
compensated in case VCL was found to have violated securities laws.
As such violation by VCL had been conclusively proved by the order
dated 28.09.2018, the Tribunal directed SEBI to compensate them to
the extent of ₹18,25,041/-, being the amount that they had invested
in the shares of VCL in the year 2002. The Tribunal directed that
no interest had to be paid thereon as they had to bear part of the
risk of investing in the securities market. SEBI was directed to pay
this compensation, either from the amount disgorged from VCL and
the connected entities or from its Investor Protection and Education
Fund, within a time frame.
Challenging the above order dated 02.08.2019 passed by the Tribunal
in Appeal No. 44 of 2019, SEBI filed Civil Appeal No. 7941 of 2019
before this Court. While issuing notice therein on 18.10.2019, this
Court stayed the operation and implementation of the impugned
judgment dated 02.08.2019. Aggrieved by the denial of interest therein
on the amount directed to be refunded to them, Ram Kishori Gupta
and Harishchandra Gupta filed Civil Appeal (Diary) No. 42829 of 2019.
19. Two years later, by the order dated 20.12.2021, the Tribunal
disposed of the other appeals. Therein, the Tribunal noted the
contention of VCL and the other appellants that the disgorgement
order dated 28.09.2018 was barred by the principle of res judicata.
This argument was founded on the premise that the show-cause
notices dated 06.07.2012 and 12.07.2012 had already culminated
in the final order dated 31.07.2014, whereby they had been barred
from accessing the securities market for specified periods and, as
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this order had attained finality, there was no cause for the SEBI
to pass a fresh order for disgorgement pursuant to the very same
notices under the very same provisions, i.e., Sections 11 and 11B
of the Act of 1992. The Tribunal then noted its earlier order dated
30.04.2013, passed in the context of the prayer of Ram Kishori
Gupta and Harishchandra Gupta, and observed that no direction
had been issued to SEBI therein to consider the feasibility of
quantifying ill-gotten gains or to initiate proceedings for disgorgement
against the appellants and the other entities. Ergo, the Tribunal
concluded that the direction, in SEBI's order dated 16.12.2014, to
the Investigation Department, to examine the feasibility of quantifying
ill-gotten gains and to issue requisite notices for disgorgement,
was wholly without jurisdiction. The Tribunal, accordingly, agreed
with the appellants that no fresh proceedings on the same cause
of action could have been initiated under Sections 11 and 11B of
the Act of 1992 after the order dated 31.07.2014 attained finality.
The order dated 28.09.2018 was, therefore, held to be barred by
the principle of res judicata.
20. The Tribunal also rejected the contention of SEBI that the principle
of res judicata in Section 11 of the Code of Civil Procedure, 1908,
would not apply to proceedings initiated under the Act of 1992 and
held that the finality attaching to a judgment would be imperative
and great sanctity needed to be attached thereto. In consequence,
the Tribunal held that it would not be permissible for SEBI to disturb
such finality by passing a fresh order on the very same cause of
action. The principle of res judicata was, therefore, held to be fully
applicable in the instant case, notwithstanding Section 15U(1) of the
Act of 1992, which left it open to the Tribunal to be guided by the
principles of natural justice and to regulate its own procedure, as
it was not bound by the procedure laid down by the Code of Civil
Procedure, 1908. The appeals were, accordingly, allowed with costs
of ₹2,00,000/- to be paid to each of the appellants.
The common judgment dated 20.12.2021 passed by the Tribunal was
assailed by SEBI, by way of Civil Appeal Nos. 1649-1652 of 2022.
21. At this stage, we may note that the Act of 1992 was promulgated
for establishment of a Board to protect the interests of investors in
securities and to promote the development of, and to regulate, the
securities market and for matters connected therewith or incidental
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thereto. Section 3 thereof deals with the establishment of SEBI, a
body corporate having perpetual succession and a common seal.
Section 4 details the composition of SEBI and provides that it shall
consist of a Chairman, two members from the concerned Ministry, one
member from the Reserve Bank, and five other members, of whom
at least three shall be whole-time members, all to be appointed by
the Central Government. The powers and functions of SEBI are set
out in Chapter IV of the Act of 1992, comprising Sections 11, 11A,
11AA, 11B, 11C and 11D. Section 11(1) provides that it shall be the
duty of SEBI to protect the interests of investors in securities and to
promote the development of, and to regulate, the securities market,
by such measures as it thinks fit. Section 11(2) details such measures
under clauses (a) to (m). Section 11(4) details some more measures
that can be taken by SEBI, either pending investigation or enquiry
or on completion of such investigation or enquiry. Section 11A of
the Act of 1992 empowers SEBI to specify, by way of Regulations,
the matters relating to issue of capital, transfer of securities and
others matters incidental thereto; and the manner in which such
matters shall be disclosed by companies. SEBI is also empowered
under Section 11A(b), by general or special orders, to prohibit any
company from issuing a prospectus, offer document or advertisements
soliciting money from public for the issue of securities; and specify
the conditions subject to which the prospectus, offer document or
advertisement, if not prohibited, may be issued. Section 11B of the
Act of 1992 empowers SEBI to issue directions and levy penalty. It
presently reads as under:
'11B. Power to issue directions and levy penalty - (1) Save
as otherwise provided in section 11, if after making or
causing to be made an enquiry the Board is satisfied that
it is necessary-
(i)
in the interest of investors, or orderly development
of securities market; or
(ii)
to prevent the affairs of any intermediary or other
persons referred to in section 12 being conducted
in a manner detrimental to the interests of investors
or securities market; or
(iii) to secure the proper management of any such
intermediary or person,
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it may issue such directions -
(a) to any person or class of persons referred to in section
12, or associated with the securities market; or
(b) to any company in respect of matters specified in
section 11A,
as may be appropriate in the interests of investors in
securities and the securities market.
(2) Without prejudice to the provisions contained in subsection (1), sub-section (4A) of section 11 and section 15-I,
the Board may, by an order, for reasons to be recorded in
writing, levy penalty under sections 15A, 15B, 15C, 15D,
15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after
holding an inquiry in the prescribed manner.
Explanation.- For the removal of doubts, it is hereby
declared that the power to issue directions under this
section shall include and always be deemed to have been
included the power to direct any person, who made profit
or averted loss by indulging in any transaction or activity
in contravention of the provisions of this Act or regulations
made thereunder, to disgorge an amount equivalent to the
wrongful gain made or loss averted by such contravention.'
However, at the relevant point of time when the show-cause notices
were issued by SEBI in the year 2012, Section 11B of the Act of
1992 read thus:
'11B. Power to issue directions - Save as otherwise
provided in section 11, if after making or causing to be
made an enquiry the Board is satisfied that it is necessary-
(iv) in the interest of investors, or orderly development
of securities market; or
(v)
to prevent the affairs of any intermediary or other
persons referred to in section 12 being conducted
in a manner detrimental to the interests of investors
of securities market; or
(vi) to secure the proper management of any such
intermediary or person,
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it may issue such directions -
(a) to any person or class of persons referred to in section
12, or associated with the securities market; or
(b) to any company in respect of matters specified in
section 11A,
as may be appropriate in the interests of investors in
securities and the securities market.
22. The scheme of Section 11B of the Act of 1992 is that SEBI, in the
interest of investors in securities and the securities market, may make
or cause to be made an enquiry in that regard and, if it is satisfied
that it is necessary to do so, SEBI may issue such directions, be
it to a person or a class of persons, referred to in Section 12, or
associated with the securities markets or to any company in respect
of matters specified in Section 11A, as may be appropriate in the
interest of investors in securities and the securities market. The
Explanation, which was inserted therein with effect from 18.07.2013,
makes it clear for the removal of doubts that the power to issue
directions under Section 11B shall include and always be deemed
to have included the power to direct disgorgement of an amount
equivalent to the wrongful gain made or loss averted by indulging
in any transaction or activity in contravention of the provisions of
the Act of 1992 or the Regulations made thereunder. Section 11(5)
of the Act of 1992, which was also inserted in the statute book with
effect from 18.07.2013, provides that disgorgement may be affected
pursuant to a direction issued under Section 11B of the Act of 1992 or
the provisions of allied enactments, such as the Securities Contracts
(Regulation) Act, 1956, or the Depositories Act, 1996, etc, and the
amount disgorged pursuant to such direction shall be credited to
the Investor Protection and Education Fund established by SEBI
and shall be utilised by it in accordance with the Regulations made
under the Act of 1992.